Skip to comments.Demand Exceeds Supply In 90% Of America's Major Housing Markets
Posted on 09/11/2013 7:49:45 AM PDT by SeekAndFind
Price appreciation is largely driven by the degree to which demand exceeds supply. While the best short-term measure of the housing demand/supply balance is months of supply of homes on the market, the best long-term measure is the ratio of household formations to new home construction. Since household formation data is highly unreliable, we use job growth as the best proxy because there are typically 1.2 jobs per household.
Affordability, confidence, and demographic factors determine whether that household rents or buys. We have a great demand model that estimates that demand by price and rent range.
Consider the following:
* Demand exceeds supply in 90% of major markets. The employment growth-to-permit ratio (E/P ratio) remains above the standard equilibrium level of 1.2 in 18 of the top 20 markets. Nationally, the E/P ratio of 2.5 is well above equilibrium levels and up from a ratio of 2.3 a year ago.
* E/P ratios are most favorable in many slower recovering markets. Demand exceeds supply the most in many markets that are still in the very early stages of recovery, like Chicago and Boston. In Chicago, job growth exceeds permit growth by a factor of seven. The primary cause of limited price growth in many Midwest and East Coast markets is distress, which is steadily clearing. Once the excesses clear out, these markets are poised to appreciate quite well.
* Texas' job growth continues to outpace supply. Robust economic growth will continue to boost prices in Texas, despite minimal entitlement barriers and permit levels that are near historic norms. Despite rapidly rising construction, Houston and Dallas are still adding jobs twice as fast as new home permits are being pulled.
(Excerpt) Read more at businessinsider.com ...
read the comment on the article at the site. Very contra.
what? where I live it is taking 4 years to sell a house....
demand exceeds supply?
My sister sold her home for a lot less than she bought it for, in one of the top real estate markets in the country in Texas where the economy is not as bad as most of the country.
Could be true for wrong reason.
Banks still hold inventory of F/C homes, not releasing inventory all at once.
I used to think the reason home builders wanted more illegal immigration was to get cheap labor.
Now I think they want cheap labor and more people to buy their homes.
The boomers are retiring and downsizing, and in 20 years dying.
Now now, not supposed to dash things with facts.
Demand never exceeds supply when prices are free to move.
“Location, Location, Location.”
This the biggest bunch of carpola I have ever read. The Atlanta housing market is non existent. After 27 years in the mortgage industry I can promise you things are not better. Except in DC, N Dakota and a couple of other places. Nothing is selling and no building is going on. Wait til interest rates go up another point. And over 90 million people still out of work and likely to continue for 3.5 more years.
Flippers are buying up the fixer uppers, putting in fresh paint and carpet. Lots of existing homes are functioning as rental properties.
This is not comparable to an 80’s style mega build trend.
ChiComs are buying up tons of properties.
yeah, maybe Kansas City isn’t Florida
oh wait, Florida has tons of empty houses you can get for a song
It's more a sign of how far down the market went, with the eventuality of smart people moving in and buying up all the good deals that were half price. Eventually, no more deals, and now it's much harder to even find one at market price.
This may change as interest rates move up.
New homes are going up like crazy in our area south of Houston. One subdivision new since January 2013 has 1500 homes, all occupied. Also three new schools under construction with ballot issues this fall to build two more. Resale houses in our neighborhood sell within 2-3 months now versus 6-8 months last year, except for one which has been on the market for 5 months now. But IMO it is priced too high - $50,000 more than they paid for it when it was built ten years ago and $20,000 more than the sales price of any of the similar homes in the neighborhood.
I don’t wish these sellers ill but if it sells for anywhere near the listed price, taxes on everyone’s home in the neighborhood will increase because of supposed increase in value. And our property and wind insurance costs will also increase.
With market pricing, demand = supply everywhere.
Demand exceeds the supply of underpriced homes, and supply exceeds demand for overpriced homes.
save for later
I do real estate in Vegas. Listings have risen from 5500 to 8000 just the last couple of months. I suspect the stampede will begin soon for the last musical chair.
You’ve posted an advertisement for John Burns Real Estate Consulting.
Keep in mind the math here. A very small denominator, in this case permitting, you’ll get a very big number. 2nd, ‘we have a great model’. Has anyone back tested the model?
3rd, they state that household formation v. new construction, which their graph doesn’t show.
4th from John Burn’s own blog on 7/29/13: Investors now a concern http://www.realestateconsulting.com/blog/john-burns/investors-now-concern
5th BI is a liberal hit counting rag.
6th Why post anything from BI?
7th Read the last paragraph of the article for the caveat that essentially throws out the headline.
Garbage in, garbage out.
I suspect demand among properly qualified buyers is still way off its peak.
I have found in pockets of the NW we are seeing building because of fee holidays not like the boom before but better than 4 years ago. Although I would not call it a recovery.
The inventory of foreclosed assets continues to grow, as the moratoriums end on foreclosures in several states.
How many thousands of potential homeowners don't qualify due to their student loan debt?
‘Business Insider’, lol.
“Everything is rosy!”
Yes I’m sure there are pockets where things are better. My brother in law has a mini mansion in Fairfax County that has appreciated several hundred thousand. To be fair though it barely offsets the place in Fla that has depreciated by about that much and he cannot unload.
I guess the announced 20+ thousand layoffs in the Mortgage Dept. of the major banks never happened.
“Demand never exceeds supply when prices are free to move.”
So simple yet so profound.
Are you an economics professor? If not, maybe you ought to be. Better yet, how about a ranking member of the President’s Council of Economic Advisors?
“ChiComs are buying up tons of properties”
With cash, don’t need no stinkin loan.
Business Insider is a Democrat propaganda organ designed to pretend it is competing with genuine business publications such as The Wall Street Journal, Forbes, Investors Business Daily, etc.
Their goal is to promote positive views about “the economy” and give the Democrat “mainstream” newsrooms a legit-sounding “source” to quote. LMBO!! Can you imagine what the Democrat newsrooms would be saying about “the economy” if there was a Republican president?
Total BS... you should see the empty business buildings and affordable houses in South Mississippi that have been on the market and do not have anyone even remotely interested in them. Everywhere I go is like that. They are moving some new housing to some of holder’s people that qualify for government graft.
I can only add my miniscule anecdotal observations.
Here in Yuba City, a small city an hour north of Sacramento, California, homes are selling before I notice the “for sell” sign on the grass. I’m often noticing the sold or pending sign before I notice the for sale. Homes are selling quickly here.
Maybe it is because all the homes are under $400,000 and most are under $200,000. Maybe it is because we are poorer town. Maybe it is all investors. I have no clue.
I only know that most homes priced right are selling in under 30 days and many in way under 30 days.
That is my meaningless local snapshot.
At any moment, supply is what is on the market at the time, not all the people who would like to sell some day. Very few houses have been built the last 5 years and many sellers are renting out their homes instead at this time. If they all dumped their houses on the market, then the oversupply would swamp demand. But most people are still stuck in the mindset that homes are selling so they aren’t trying to sell. Many of the ones trying to sell are finding success quickly.
I have no clue the backlog of bank owned homes anymore. I haven’t seen any data on that in a while. But to be sure, it has been a long time since the builders have built gobs of homes.
The housing bust can’t last for ever. Every market finds equilibrium some time.
Demand has nothing to do with the price she paid.
If she bought anywhere in the country between 2004-2006 she would have paid more than its value today.
I sold a house in Feb. that I bought in 1998. I sold it for almost twice what I paid. If I had sold it five years ago I could have tripled my investment.
The key word is INVESTMENT. Real estate prices go up and down, typically in 7-8 year cycles. However, the demand for housing in Houston and Midland/Odessa has nothing to do with the availability in Amarillo. All real estate is local.
Most people lost site of the fact in the last decade that real estate does not ALWAYS go up(especially in the short term).
The premise of the article is incorrect. Demand ONLY exceeds supply at the current price for that commodity.
FYI, I sold my house @ $126/square foot. I bought a house for $98/sq ft. There are many houses on the market asking $150-200/sq ft. They are not selling.
Where the demand in our country for NEW housing starts is primarily for multifamily housing. Apartments and condos construction. It is not single family house construction, with the exception of certain markets like Houston. For the most part the only single family houses being built are the mcmansions(3500-6000 sq ft). Rich people always have the money to build their dream home. They rest of the country is downsizing to a condo as they get older or moving into an apartment they are renting.
Keep in mind we will always need to build houses. They burn down(western fires), get flooded(hurricanes), earthquakes, sink holes(Fl), demolished(Detroit), tornadoes(Midwest), etc. Based on the 300 million people we have in these United States, most economists state we need to build 1.4 million housing units per year just to keep up with population growth and immigration. In 2004 we built 2 million. In 2009 it had dropped to 465,000. I are about at 900,000 now. Keep it in perspective.
I have been a lumber broker for 28 years.
Bingo! Or, in places like Detroit where there is zero rental value, they are no longer on the market due to vandalism or outright destruction. IOW, the housing may exist, but it is no longer on the market.
. . . or other BS reasons. More than you know.
We did NOT want to deal with the government when we went for a refi about this time last year. We had 20 years remaining on our loan at 6.75% and never missed a payment. This is the Pittsburgh area market so we missed the housing boom but also the bust (remarkably stable market, goes up 4% in a good year, goes down 4% in a bad year). We had about 40% equity.
Low risk, no brainer refi, right? Wrong! The government has so many bullsh*t rules that even private lenders were afraid to get involved.
We finally found one through a broker which found us a bank in MICHIGAN willing to make us the 15 year refi loan we wanted with the FHA guarantee (which was rolled into the fees) phased out in the first three years.
Best deal we could get: lost some equity due to all the fees, but reduced the payment, the loan term by 5 years and the interest rate from 6.75% APR to 2.75% APR.
Government is basically a criminal enterprise. Banks subject to their regulation are part of the criminal enterprise. You will be allowed to make or (in our case) save money as long as the criminal enterprise makes a cut which they deem sufficient.
Like the Japanese in the 1980s. How'd that work out for them?
- in default on their mortgages but not on the market because the banks do not want to write down the value of their assets (loans) which they would have to do in foreclosure, and others that are:
- being sold to hedge funds that are being supplied with nearly free money that they can speculate with by purchasing homes with cash.
The (false) national economic illusion of "recovery" continues.
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